Emerging markets (EMs) will overtake the Western world in terms of the collective nominal size of their economies by 2050, with China and India as the second and third largest behind the US, according to Capital Economics’ long-term forecasts.

Over half of global growth in the next ten years will be driven by EMs, potentially reaching nearly 60% of growth by 2050, according to the latest forecasts. India is anticipated to spearhead this growth, with predictions of it becoming the world's third-largest economy by as early as 2026.

“On our forecasts, economies such as Vietnam, the Philippines and India may grow at around 4-5% per year over the next few decades. India will headline the rise up the rankings. Indeed, it will overtake Japan and Germany to become the world’s third-largest economy as soon as 2026,” says Capital Economics.

The anticipated leap in the global GDP rankings for EMs is fuelled by rapid population growth, the potential to evolve into manufacturing powerhouses through "friendshoring," and the advantages gained from the transition to green energy.

However, the economic shift comes with a caveat: "At an aggregate level, income convergence with developed markets (DMs) will be slower than it has been in the past couple of decades," according to Capital Economics, which points to rapid development of artificial intelligence in DMs that is expected to allow them to keep their productivity advantage for years to come.

Despite slower income convergence, EMs are generally projected to outpace DMs in growth over the coming decades. Forecasts suggest that by 2050 emerging markets will constitute 58% of nominal global GDP, an increase from 47% in 2022.

As bne IntelliNews reported in a deep dive into Putin’s big bet on the Global South Century, many of the EMs are already rapidly overtaking DMs in PPP adjusted GDP size. Russian President Vladimir Putin has definitively broken with the West and needs to remake Russia’s economic ties with the faster growing Global South countries in a race where babies are competing with technology as the basis of economic prosperity.

Three groups

The economies making significant progress can be categorised into three distinct groups, according to Capital Economics.

Economies that will experience rapid growth in their labour force are concentrated in sub-Saharan Africa. Although working-age populations are likely to grow at a slower pace than in previous decades, they will still expand rapidly, at around 2-3% per year, according to Capital Economics. Working-age populations could double in size in much of the region over the next few decades; Nigeria, Uganda, Kenya and Tanzania will jump five to ten places up the table. Ethiopia could rise by almost 30 places, into the top 25.

However, a concurrent rapid rise in productivity is not anticipated, with weak institutions, low investment, a lack of regional integration and limited prospects of more serious economic reforms likely to keep productivity growth muted and limit the pace of catch-up growth.

The second group includes economies with robust manufacturing sectors or the potential to develop them, driven by friendshoring – realigning supply chains into countries allied with the US. This shift could lead to higher productivity, fostering accelerated GDP growth and faster income convergence with DMs.

"Manufacturing tends to assimilate low-skilled workers and absorb technology and know-how from more developed economies," resulting in greater productivity gains that should bolster GDP growth and strengthen real exchange rates, says Capital Economics.

The third group set to benefit comprises EMs rich in essential raw materials for the green transition and those positioned to generate clean energy. Countries that can produce primary stocks of raw materials such as copper and nickel that are needed for the transition (Chile and Indonesia) and those that are well placed to produce clean energy (Morocco) will outperform.

“Of course, some EMs will underperform and slip down the global league table over the coming decades. Much of East Asia, as well as parts of Central Europe, face significant demographic headwinds. While China won’t slip down the ranking, growth will become much more like a “normal” EM and it won’t overtake the US at any point,” says Capital Economics.

Russia, on the other hand, faces a downturn in economic standing due to Western isolation, and oil-producing nations with limited reserves are projected to falter as the green transition curbs fossil fuel demand.

The long-term outlook for EMs, though optimistic, is tempered by the realities of climate change, which may dampen growth rates.

“Indeed, at the aggregate level we think EM income convergence with DMs will slow over the next couple of decades; a trend that will be exacerbated by the emergence of artificial intelligence as DMs are likely to be better equipped to deploy the technology on a wide scale,” Capital Economics said.

World ranking by nominal GDP 2023 2050 - 1

World ranking by nominal GDP 2023 2050 - 2